Why Gold Is Better Than Bitcoin

The current trading week is shaping up pretty well for gold bulls. The classic representative of the precious metals market has grown by $25 in recent days alone, surpassing the psychological barrier of $1900 per troy ounce. Since May 1, gold has added $150 to its value, which corresponds to an 8% profit.

Growing inflationary risks, a weakening dollar, as well as the continuing collapse of the US debt market remain the main factors that cause increased demand for gold. The 10-year government bond yields fell below 1.6% on Tuesday for the first time in nearly a month. Let us recall that a decline in Treasury note yields supports the XAU quotes since it reduces the opportunity costs when investing in assets that do not generate interest income. Gold is among them.

Market participants also associate the rise in the value of gold with a significant drop in the digital asset sector. Some time ago, experts constantly compared Bitcoin to gold, calling it a new alternative to safe-haven assets that can be used to hedge against risks. But in light of recent events and the rapid downtrend in the world’s most popular cryptocurrency, gold managed to prove to all skeptics that it is still the best hedge asset. In this regard, the investment position in gold began to grow again, while the cryptocurrency market suffered a strong reputational blow as many investors became convinced that cryptocurrencies cannot yet be a full-fledged source of capital preservation because they can be easily affected by the decisions of one person.

Today, interest in gold keeps growing exponentially. According to the Commodity Futures Trading Commission (CFTC), gold speculative net positions rose to 198.9 K from 192.3 K a week earlier and for the first time since February, almost reached 200 K. In addition, the World Gold Council (WGC) published its traditional report on gold purchases in April according to which gold is actively purchased even by those countries that have not previously been involved in this. So, Japan has increased its gold reserves to 846 tons, having bought 80.8 tons. In turn, Hungary acquired 63 tons of bullion in April, which increased its gold reserves more than 3 fold. Turkey bought 12.9 tons of precious metal, India - 7.5 tons.

Active gold purchases by institutions may be caused by growing inflationary pressures in the US, which drives a decline in the US dollar. According to economists at Goldman Sachs, the US core consumer price index, which does not take into account volatile food and energy prices, will peak at 3.6% in June against the current 3% and will remain at 2.7% in 2022. Unsurprisingly, against this background, the value of gold, a traditional hedge against the risk of currency depreciation, is rising. Analysts at AMarkets believe that gold may rise to $ 2,000 in the next 3 months.